Subaru Ponders Whether to Go Mainstream or Remain a Niche Player as Profits Surge

What does a comparatively small player in the auto industry like Subaru do when it sees its stocks rise fivefold since the beginning of 2012, its profits almost triple to a record ¥48.5 billion (US$504 million / €377 million) last quarter, while also returning an industry leading operating margin of 12.7 percent that was second only to China's Great Wall Motor Co, according to data from Bloomberg News?

In this scenario, companies usually have two (basic) options: either they continue on the same path that led them to where they are now, or they grow and attempt to challenge more mainstream players.

That's exactly the dilemma that Subaru officials are facing now as parent company Fuji Heavy has reaped the most benefits from the yen’s weakening of all local carmakers, not to mention that a bad situation turned into a blessing for the automaker when the Chinese government denied Subaru approval to manufacturer cars locally. You see, last year, Chinese consumers turned against Japanese products after the Sino-Japanese sovereignty dispute over the Senkaku Islands, hurting profits and sales of any Japanese company in the country.

Japan Times and Bloomberg News are reporting that Fuji Heavy, the largest shareholder of which is Toyota Motor Corp. will begin discussions this month to determine what direction Subaru will take. Up until know, Subaru has hovered above other mainstream automakers like Nissan, producing more expensive cars highlighted by advanced all-wheel drive systems and the use of boxer engines.

Fuji Heavy President Yasuyuki Yoshinaga told reporters that the debate is whether Subaru should abandon some of its core philosophies creating cheaper cars and pushing into markets such as India, or continue as it has.

“We’re standing at a major turning point for Subaru,” said Yoshinaga. “It shouldn’t just be about volume. We should be making cars only Subaru can make, which are a little more expensive and profitable than the competition.”

“Some people in the company may want to make mass-market products or cheaper cars, but is this really the right direction for Subaru?” Yoshinaga asked. “We’re not a carmaker that can grow as big as Toyota. And even if we could, reaching that sort of scale would mean we’d stop being Subaru.”

For the time being and until it reaches that decision, Subaru plans to invest $400 million to increase output of its Indiana, USA factory by 100,000 units before the end of 2016, as it moves forward to break the 1,000,000 sale mark in the same year. In the 2012 fiscal year that ended in March, Subaru sold 724,000 units.